Argonaut Gold faces dilution challenge at Ontario mine

Argonaut Gold faces dilution challenge at Ontario mine

Argonaut Gold Inc. [AR-TSX] is dealing with dilution challenges at its flagship Magino mine in northern Ontario. Details of the dilution challenge are disclosed in an operational update that also contains the company’s production guidance for 2024.

 Argonaut said it expects to produce between 225,000 and 250,0000 ounces of gold equivalent ounces this year at an all-in-sustaining cost of US$1,950 and US$2,050. The production forecast, if achieved, would mark an increase of 13% to 25% over the company’s 2023 production total.

Higher-than-expected costs are related to the completion of a tailings management facility at the Magino gold project and construction of a third heap leach pad at Florida Canyon in Nevada.

Aside from Magino, Argonaut also has three additional operating mines, including Florida Canyon, La Colorada in Sonora, Mexico, and San Agustin mine in Durango, Mexico. Magino is expected to become Argonaut’s largest and lowest-cost mine.

Argonaut was in the news recently when it declared commercial production at its Magino, a move that the company described as a first step in transforming the company as it enters a pivotal growth stage. However, in an operational update, the company said the mine site is experiencing higher dilution rates than anticipated in a 2022 technical report. It said this is due to challenges with selectively mining the high-grade parts of the orebody.

As a result of higher dilution in the high-grade areas of the deposit, the average grade to the mill is expected to be 5.0% to 10.0% lower than forecast in the technical report over the next two to three years. Still, Argonaut said life-of-mine grades and ounces are not expected to be impacted.

“We have learned that selectively mining the high-grade portion of the deposit to the extent predicted in the technical report, in the initial three years, may not be achievable,’’ said Argonaut’s Chief Operating Officer Marc Leduc.

“Operationally, our near-term focus continues to be the ramp up of the Magino mine,’’ said Argonaut President and CEO Richard Young. “The medium-term goal is to expand the reserve base and mill throughput in order to increase production to the 200,000 to 250,000 ounce per year range, while reducing the cost structure,’’ he said.

“We anticipate completing a re-financing of our current debt package by the end of the first quarter to provide sufficient liquidity during the ramp-up phase and for our future growth objectives.’’

Due to the slower-than-planned ramp-up of Magino to commercial production, the company recently elected to bolster its balance sheet through the sale to Franco Nevada Mining Corp. [FNV-TSX, NYSE] and certain of its subsidiaries an additional 1.0% net smelter return royalty on the Magino mine and its non-core royalty holdings in Canada and Mexico for an aggregate purchase price of US$29.5 million. The deal leaves Franco-Nevada will hold an aggregate 3.0% NSR on the Magino mine.

On Monday Argonaut Gold shares eased 2.7% or 0.01 to 36 cents. The shares are trading in a 52-week range of 77 cents and 34 cents.

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